How Crypto-Entrepreneurs Make Money on Bitcoin Mining in Russian Kaliningrad

Kaliningrad Oblast is a Russian exclave surrounded by the EU and NATO countries – Poland and Lithuania. Its capital Kaliningrad has recently got attention from the international community thanks to the World Cup, help there as well. Among local businessmen this city has been known as a venue of amber, often referred to as the “Baltic gold.”

However, nowadays Kaliningrad is gaining a reputation of the bitcoin-city as more and more entrepreneurs open mining farms here. The Financial Times reporter Jemima Kelly is telling about the latest crypto-enthusiasms in Kaliningrad in the article called “Mining for Bitcoin in a remote Russian outpost.”

Old Soviet Factories Are Now Crypto-Hubs

If earlier it was more profitable in Kaliningrad to “mine” amber, now “the digital gold” is getting the leadership. According to representatives of the Kaliningrad Region Development Corporation (KRDS), a state-owned entity which entices businesses into the region, new entrepreneurs keep coming there to observe potential bitcoin mining farms.

As of writing, there popped up a couple of businesspeople from Moscow who were considering the setup of a crypto mine in Kaliningrad. Finally, the pair decided to invest $50 million in two sites. Kelly emphasizes that it’s a significant amount for a province with GDP less than $7 billion.

As it is known, those are huge data centres where powerful machines process calculations to verify transactions. Miners either get bitcoins in return for their performance or merely generate them. Whatever the outcome is, the entire process is energy-aggressive, so facilities play a significant role in the mining industry.

Kaliningrad is rich in old Soviet factories in disrepair which can be perfect facilities for mining. For example, in the north of the city alone one of the factories houses 60 bitcoin and ether mining computers, according to the FT. To rent such a facility in Kaliningrad may cost around 15,000 rubles per month, which equates to just about $230. Mining in such a factory may bring two bitcoins a month, each worth around $6,700 as of writing.

Under-Regulation Is Not a Problem?

At the moment cryptos and mining are not legalized in Russia. And the overall position of this country on cyber assets remains unclear. At first, Russia had poised to ban them, whereas later the country’s position softened as its president Vladimir Putin talked with Vitalik Buterin, the “father” of Ethereum. There have also been circulating rumors that Russia may issue the crypto-ruble.

Nevertheless, the uncertainty does not Russian miners from making business, and Kaliningrad is not exclusion. As per the region’s IT and communications minister Sergei Evstigneev, the under-regulation of cryptos on the state level is not a big deal.

“Whatever is not illegal is legal. There are no laws regarding cryptocurrency mining because it’s a new kind of business,” he told the FT.

So the only clear thing is that as long as you can make money, it doesn’t matter in which form it comes in. Kelly stresses that Kaliningrad, thus, is very open to business.

Kaliningrad Embraces Any Business, Including Crypto

Due to its location, Kaliningrad appears to be excluded from its neighbors – neither is it a member of the EU, nor of NATO. The region does export goods, but mostly to Russia, and it is quite a challenge as it takes 300 miles to transport them to the east.

But the benefit for Kaliningrad is that it has been denominated as a special economic zone for the past 22 years. Therefore, it can lure investors to the region as they get promised to get benefits. Among them, there are reduced social security premiums, duty-free imports, and different tax cutoffs.

It is noteworthy that this year the Russian federal gov’t decided to give tech companies even more tax reductions in Kaliningrad. Therefore, since early 2018 it is much easier to export digital assets from the region than transporting physical goods. As a consequence of this move, crypto-businessmen in Kaliningrad won’t be obliged to pay property or income taxes in the span of the following six years.

Vladimir Zarudny, the general head of KRDC, added:

“Kaliningrad has become a kind of lab where we can test new initiatives and legislation. We think we could be a liberal Russian territory which is friendly for doing business, and a gateway to Russian markets.”

Another seductive factor for foreign investors, according to his words, could also be the historical connections of Kaliningrad with Europe as well as its attractive beaches.